Labour has cut its green investment plans by half, ending weeks of speculation and confirming the biggest and most controversial U-turn of Keir Starmer’s leadership.
In a move that prompted an angry response from environmental groups, unions and some in the energy sector, Starmer and Rachel Reeves, the shadow chancellor, jointly announced they would slash the green prosperity plan from £28bn a year to under £15bn – only a third of which would be new money.
It ended a protracted internal battle within Labour over the policy, with some senior officials urging Starmer to stick to his green commitments and others warning it would be an electoral liability.
While intended to shield against repeated Conservative attacks on the scale of borrowing required, the climbdown infuriated environmental campaigners, who said it would push up costs in the long term and make it harder for Labour to reach ambitious green targets.
The Unite union said Labour risked “outsourcing their policymaking to the Conservatives”, while the energy industry’s trade group said it was concerned about the reduced ambition for “the future of our sector in the UK”.
Speaking to reporters in Westminster, Starmer said: “We will not reach the £28bn – the £28bn, therefore, is stood down and we focus on the outcomes. We want to get to that place because at the moment all you are ever asked about is the size of the cheque and we want to have an argument about the outcomes, which is what matters.”
He added: “We announced the £28bn two and a half years or so ago, when interest rates were very, very low. Since then, Liz Truss crashed the economy and other damage has been done. [Interest rates] are now very, very high – interest on government debt is already tens of billions of pounds a year.
“We’ve always said we have to be within the fiscal rules and fiscal rules come first.”
Labour announced the £28bn spending plan in 2021, as Reeves promised to be the UK’s “first green chancellor”. She said at the time the money would be spent on battery manufacturing, hydrogen power, offshore wind, tree planting, flood defences and home insulation.
Since then the party has come under increasing attack over the plan, as Starmer and Reeves struggled to explain how they could stick to the spending commitment and keep a separate promise to cut government debt levels in the long term.
The Guardian revealed last week that Starmer had decided to scale back the plan after lengthy internal discussion and heavy lobbying from aides, such as Morgan McSweeney, Labour’s campaign chief, who said sticking to it would be an electoral liability.
Starmer had continued to cite the £28bn target as recently as Tuesday, telling Times Radio it was “desperately needed” for the party’s mission of achieving clean power by 2030.
On Thursday, he told reporters he no longer believed this was needed. Instead, Labour would spend just over £4.7bn a year, on top of £10bn of green schemes it says the government has already committed to.
About half of that money would come from changes to the government’s oil and gas windfall tax, with Labour planning to raise the rate from 75% to 78% and extend it until the end of the parliament. The other half would come from new borrowing.
The biggest cuts have been to the party’s home insulation scheme. Labour had previously promised to spend up to £6bn a year insulating 19m homes over a decade.
Under the revised plans Starmer and Reeves intend to spend just £6.6bn over the parliament – an average of £1.3bn a year.
The cuts will mean the party reducing its targets for the number of properties it can insulate. Starmer said Labour now intended to insulate 5m homes over the first five years of government, and that it would take as long as 14 years to reach the 19m target.
Other schemes, including a £7.3bn national wealth fund and an £8.3bn national energy supplier called Great British Energy, will remain, in an effort to meet the clean power pledge.
Reeves said: “Something had to give if we were going to be within our fiscal rules and to achieve clean power by 2030. We have got to get on with the national wealth fund and GB Energy, and so we have scaled back our ambition on warm homes.”
Labour’s U-turn dismayed many green campaigners, who said their energy targets would be difficult to hit without the promised level of spending.
Areeba Hamid, the co-executive director of Greenpeace UK, saidStarmer had “caved like a house of cards in the wind”.
Mike Childs, the head of policy at Friends of the Earth, said Labour had “turned its back on the people who most urgently need these essential upgrades – the many millions of low-income households suffering from living in poorly insulated homes”.
Emma Pinchbeck, the chief executive of Energy UK, the trade association for the energy industry, said the issue was less the actual sum spent than “the signal it sends”. She said: “The party has been engaging constructively with business over recent months, but retaining the confidence of the market is dependent on not making U-turns that damage the UK’s investability.”
A number of Labour MPs simply expressed relief that the policy had been decided. One shadow cabinet minister said: “The policy is the main thing. To put a number on it was always a hostage to fortune with a flatlining economy and a government spending all that it has.”
Signup For Our Newsletter
Be the First to Know: Stay ahead of the curve with breaking news alerts and early access to the stories shaping our world.